MILAN -- A one-year delay in Fiat's option to sell its struggling car unit to General Motors will give it time to boost Fiat Auto's value but does not change the group's outlook, analysts said on Monday.
Late on Sunday Fiat and GM said the "put" option would now start in January 2005. In the meantime they would try to settle a wrangle over whether the put was still valid after Fiat recapitalized Fiat Auto and sold its customer credit arm.
"I never assumed the put would be exercised so nothing has changed," said Gaetan Toulemonde, an analyst at Deutsche Bank.
"(Fiat and GM) have a year to resolve their differences but it's in both their interests to do so and protect their joint ventures so this doesn't change anything," said Cyril Benayoun, an auto credit analyst at BNP Paribas.
GM bought 20 percent of Fiat Auto in 2000, promising to relieve Fiat of the rest from early 2004. The two groups also set up joint ventures in development and purchasing which are key to cutting costs at GM's loss-making European arm Opel.
Since the deal Fiat Auto's sales have tumbled and losses have mounted, forcing Fiat to launch a sweeping plan to keep it afloat and raising the spectre of a painful purchase for GM.
GM argues that a recapitalization of Fiat Auto, which diluted its stake to 10 percent, and the sale of financing unit Fidis broke the terms of the 2000 deal and rendered the put void.
While that would have been a disaster last year when analysts said Fiat's only hope was to sell its 104-year-old carmaker, the group has since sold its most profitable assets and raised fresh cash to fund an auto-based future.
Chief Executive Giuseppe Morchio says Fiat Auto should hit operating breakeven in 2005 at which point analysts said Fiat would be able to get a much better price than it would today.
They also said that shifting the whole five-and-a-half year exercise period back a year would give Fiat more time to sell in 2009-2010 when the whole landscape could have changed.
"We knew Fiat wasn't keen to sell at a depressed price so they had to wait a few more quarters anyway. They are focused on the turnaround and have the financing to do it," said BNP Paribas' Benayoun.
"The worst risk to Fiat and its ratings would be if the put was canceled," he added.
The put option has been key to Fiat's debt ratings. One of the reasons all three major credit rating agencies cut it to "junk" or non-investment grade was the insistence of Morchio and Chairman Umberto Agnelli that they would not sell Fiat Auto.
The put was also vital for Fiat's main creditor banks which last year shelled out a new three billion-euro loan, based on the parachute protection of the put.
On Monday rating agency Fitch said the put delay did not alter its BB rating on Fiat because the company intended to "use the put option in the context of a strengthening of cooperation (with GM) in the medium term".
Fiat's historical banking partner Sanpaolo IMI declined to comment on the changes to the option while its other two top creditors were not immediately available.
Rating agency Moody's Investors Service analyst Falk Frey said Fiat was unlikely to exercise the put while it was still nursing Fiat Auto back to health, including cutting jobs, sharing more costs with other Fiat firms and with GM via their joint ventures.
"But we assume it remains a valid option," Frey added.